Farm bill future rests on trade agreements

It may be time for farmers and other agricultural industry members to start redirecting the way we think about domestic agricultural trade policy.

“Trade agreements are going to be the way we handle agricultural issues from now on, specifically multi-lateral trade agreements such as the North American Free Trade Agreement, the Global Agreement on Tariff and Trade (GATT), and the World Trade Organization (WTO),” says Darren Hudson, an agricultural economist at Mississippi State University.

Hudson, who spoke recently at the annual meeting of the Mississippi Agricultural Economics Association in Starkville, compares the WTO trade agreements to a golden straightjacket.

The WTO agreement is golden, he says, because it allows access to larger markets for U.S. producers and allows greater choice for our consumers. “The Principle of Comparative Advantage suggests that global welfare is increased when markets are opened up in free trade. Thus, the ‘golden’ part means that prosperity is generated under free trade.

“However, to achieve this goal, international agreements must be made to set the rules of the game. This sometimes limits our ability to pursue domestic policy that we might feel is appropriate,” Hudson says. “Failure to comply with the rules opens us up to retaliation by trading partners and decreased confidence in U.S. markets. This works the same for our trading partners as well. This is the straightjacket we are forced to wear under the WTO agreement.”

Put simply, the straightjacket worn by the United States, and several other countries participating in WTO talks, restricts Congress' ability to develop domestic farm policies because any subsidies must now come under WTO limit levels.

“If we didn't have the $19.1 billion cap on spending under WTO, we'd just spend whatever we need to spend on domestic agriculture subsidies,” Hudson says.

Mickey Paggi with the Congressional Budget Office says WTO consideration will play a key role in the adoption of any new farm policy. Specifically, Congress must keep any expenditures authorized in the 2002 farm bill in line with the budget authority levels consistent with WTO agreements.

Paggi says, “Our hands are a little bit tied, but hopefully the benefits you gain with open global trade outweigh what you lose on domestic subsidy flexibility.”

Hudson agrees. “Overall,” he says, “the benefits of free trade will outweigh the loss of ability to pursue specific policies. That is not to say that all industries will benefit. Some industries will be displaced because they are not internationally competitive, but the overall economy will be stronger.”

Hudson says agricultural-related WTO issues that will likely be renegotiated in the next set of talks include export subsidies, domestic subsidies, supplemental payments and crop insurance programs.